Frequently Asked Questions
INVESTMENT PROPERTIES
In this section we answer some of the common questions about investment properties.
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Broaden your options
Does this sound familiar? You want to buy an investment property in an area where property values are likely to rise by more than the average rate of growth, such as the near city suburbs. However values in most of these suburbs are well above average property prices, which means stretching your finances by more than you planned in order to afford to buy in these areas.
Of course this is an over-simplification. There are still opportunities to buy affordable investment properties, of varying age and condition, in areas with good prospects for capital growth. However you should not also overlook the option of buying an investment property in areas achieving closer to average growth rates in property values. Often these areas are further from the city centre.
Investment patterns are changing. Low interest rates enable you to borrow funds to buy investments that achieve yields, or rents, almost equal to the cost of servicing the loan. In the context of property investment this means that you can purchase a recently constructed home in a middle-ranking suburb where the rent virtually matches the loan repayments. In more expensive suburbs a similar property would be more difficult to acquire.
Although the expected immediate increases in property values may be less than other areas, you are nevertheless well on the road towards owning the property without committing substantial amounts of your own spare money. In other words the investment pays itself off.
The other bonus from buying a near new home is the prospect of less maintenance costs. Also if you select wisely, the suburb may eventually become a higher capital growth area as the metropolitan area expands further.
Other important consideration you need to keep in mind if you choose this strategy is to ensure that you select a property and a location, which are attractive to tenants.
Don't Let Your Investment Property Deteriorate
Property investors enjoy total control over their investment, unlike the fortunes of some other investments, which are determined by unknown persons. This is why property investment is popular. However this also means the property investor is more responsible for the performance of the investment.
The biggest mistake many property investors make is to allow their properties to deteriorate and not keep up regular maintenance. In the long run this is counterproductive. These properties will not increase in value as much as others, rental income will be lower, and tenants are less likely to respect these properties.
The best way that property investors can minimise ongoing expenditures is, initially, to purchase low maintenance properties, which are also structurally sound. However even the best investment properties need regular maintenance and occasional upgrades. Many of these expenditures are tax deductible, and in the long run the investor is rewarded by higher returns.
A property investor dreads the prospect of a tenant who damages the property. Thankfully this is a rare occurrence. However the best way to avoid this happening is to provide a rental property that is in top condition. Most tenants will keep a rental property in the same condition that they found it.
Employing a professional property manager is an important way to protect the long-term returns of an investment property. Apart from collecting rentals and attending to tenancy matters, the property manager can access industry databases to check if a tenant has a history of significant problems, including non-payment of rent and property damage. Many rental properties are managed by professional managers, which means that investors who use this facility can achieve a real competitive advantage over rental properties managed privately, in the selection of tenants and the care of properties.
Invest in property the smart way.
Residential real estate is a popular investment option in the Northern Territory because the population is growing rapidly, which means there is an increasing number of tenants looking for rental accommodation.
There is a growing number of people in the NT who own at least one investment property. These people are attracted by the three key features or property investment, which include regular rental income and long-term growth in property values, the security of an asset that you can see and touch, and valuable income tax deductions.
When you have paid off your home loan or you have built up plenty of equity in your home, you will also be in a position to borrow funds to invest in property. This is the typical starting point for most investors. However you should not take property investment for granted. It should be carefully planned as you would plan any other form of investment.
There are right and wrong ways of investing in property. Here are some handy tips to start you off.
- Obtain competent financial advice about investing for your stage of life and income level.
- Become familiar with the tax jargon commonly used by investors such as negative gearing, property depreciation allowances, and capital gains tax. For instance the capital gains tax laws have recently changed and this may influence your investment decision.
- Look for areas and properties that are popular to tenants.
- Buy well constructed properties that require minimal on-going maintenance.
- Buy with your head not with your heart. Have a business approach to buying an investment property.
- Don’t buy a property simply because you like it. Instead you should buy an investment property because it is likely to be popular for tenants and there is plenty of potential for capital growth.